On CNBC's "Options Action" on Friday, Mike Khouw suggested a strategy for investors with a long position in United States Oil Fund LP USO.
The ETF hasn't recovered as much as crude oil, but it is still indicative of future price movements in crude oil. Khouw is concerned crude oil could pull back after a big move higher, and so he would look to sell covered calls in USO. He wants to sell the March $37 call against the long USO position for a credit of $1.20.
The sale of the call offers a bit of protection in case of a move lower and it also improves the profitability of making a profit. It offers some upside, as the selling price is set at $38.25 or 8.23% higher.
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